Any dedicated bargain hunter who scours the Napa listings is not surprised to find among the most deeply discounted entries one of two notations: foreclosure or short sale.
Everyone knows what the “foreclosure” designation means—it’s been repossessed by the bank. It’s an REO (real estate owned). By discounting the asking price, the lending entity invites buyers to take the property off its books. It is here that the economists’ favorite acronym, “TANSTAAFL” (There Ain’t No Such Thing As A Free Lunch), comes into play. Foreclosed properties have frequently been neglected by their previous owners, who are not happy campers. So the cost of rehabilitation must be factored in before any offer is made. Still, foreclosures can represent real opportunities for buyers with patience and determination.
Slightly different are foreclosures’ first cousins: Napa’s short sale listings. There are any number of unforeseen circumstances that can cause an owner to fall into financial distress, but when their home has to be repossessed, the impact on the borrower’s credit is immediate and drastic. It can make finding a new place to live difficult, and can even make future employers hesitate to hire someone whose record includes that kind of hefty unpaid debt.
Napa properties which fall in the “short sale” category are those in which the borrower has been unable to keep up with the mortgage payments, but who is arranging for the lender to agree to accept a payoff that’s less than the full amount owed. When a short sale is finalized, the result is still some damage to the original borrower’s credit, but less than had a foreclosure proceeded. The buyer will benefit from what should be a substantially lower price than a comparable Napa property would bring—and a home that is usually in better condition. An eager lender can also sometimes offer favorable financing terms, too.
But remembering what the economists say about TANSTAAFL, there are also these points to keep in mind:
Short sales involve extra bureaucratic red tape. The fine print includes items such as the lender having to approve details of the sale—and that can result in nerve-racking delays.
Although the owner is usually trying to keep a short sale property in good shape to facilitate the deal, banks won’t allow a short sale until the borrower has seriously fallen behind in payments. That can mean an inability to keep up with the expense of proper maintenance. As in a foreclosure, canny short sale buyers make certain they know the cost of rehabilitation.
The possibility of sticky legal issues needs to be recognized. For instance, if the seller has filed for bankruptcy, it could squelch the whole deal. Negotiating a short sale can be considered a “collection activity”—and those aren’t allowed in most bankruptcy courts.
If one of Napa’s foreclosure or short sale-denoted listings has grabbed your attention, I can help. It will require attending to some technical issues attached to the specific property—but I’ll be pleased to help you navigate the process from beginning to end!